Uber Technologies has decided to cooperate rather than compete in China, with the ride-hailing app company set to announce a merger of its local operation with arch-rival Didi Chuxing, the largest ride-hailing company in the country.

Under the deal, Uber China investors will hold 20 percent stake in Didi Chuxing in a deal that values the combined entity at around US$35 billion, according to reports on Monday. Didi Chuxing will also make a $1 billion investment in Uber Global.

Didi Chuxing, which already had investments from key players such as Alibaba, SoftBank and Tencent, raised $7.3 billion in a financing round in June that included Apple investing in the company.

The Chinese ride-hailing company company said in June it has close to 15 million registered car owners and drivers, serving about 300 million users, with a wide range of mobile technology-based transportation options.

Didi Chuxing had recently set up alliances with other players to counter the growing influence of Uber. Besides a $100 million investment and collaboration with Lyft, which would allow Lyft users visiting China to access Didi Chuxing services from their native apps, the Chinese company has also invested in regional players like India's Ola and Malaysia's GrabTaxi.

In a blog post distributed in advance to some news outlets, Uber CEO Travis Kalanick explained why his company had decided to give up the fight in China.

He wrote that as an entrepreneur, he has learned that being successful is about listening to your head as well as following your heart. “Uber and Didi Chuxing are investing billions of dollars in China and both have yet to turn a profit there,” he added.